Frederick F. Reichheld is a business author and strategist best known for his research and writing on loyalty marketing and the loyalty business model. His books include The Loyalty Effect (1996), Loyalty Rules! (2001), and The Ultimate Question: Driving Good Profits and True Growth (2006).
His most recent book, The Ultimate Question, focuses on Net Promoter® Score, or NPS, a concept he developed based on his research in measuring customer satisfaction and its link to revenue growth and profitability. This metric serves as an indicator of the loyalty and advocacy customers show for a company. Research shows a correlation between companies with the highest NPS and the market leaders in their category.
Net Promoter® is a measure of customer loyalty that directly links to company growth, proven in numerous studies across industries and around the globe. It has since become a standard that successful companies worldwide have begun using for measuring and improving customer loyalty. NPS is the top customer loyalty metric now used by General Electric, eBay, Harley-Davidson, Apple, and American Express, among others.
If you have a “satisfactory” experience at a restaurant, do you tell anyone? Not likely.
You are only apt to spread a word-of-mouth opinion if the dining experience was either:
- Wonderfully good – in which case you would be a promoter of the brand, or
- Woefully bad – in which case you would be a detractor of the brand.
The restaurant example is a great illustration of how you can apply this simple, yet powerful principle to any business. The Net Promoter Score is based on the question: “How likely are you to recommend company X to friends or colleagues?” Net Promoter Scores contrast customers with positive sentiments and behaviors (promoters) against customers with negative sentiments and behaviors (detractors) to diagnose the net loyalty of an organization’s customer base. The customer base can act as an engine of business growth when a larger proportion of promoters contributes to repeat business and new customer acquisition (via positive word-of-mouth). Conversely, the customer base can act as a drag on growth when a larger proportion of detractors leads to lost sales opportunities (via negative word-of-mouth) and defection. World-class companies have Net Promoter Scores of 50 or more—some, like Amazon and eBay, score higher than 70.
Traditional Customer Satisfaction Surveys
Successful Net Promoter programs are not traditional customer satisfaction surveys with the “would you recommend” question added for convenience. Before Net Promoter, many customer satisfaction programs yielded management reports that lacked credibility and, more importantly, didn’t deliver business results. Customer satisfaction scores for the majority of large corporations have not historically shown significant improvement. Many CEOs express a lack of confidence in their customer satisfaction efforts.
It’s interesting to note how the NPS equation handles customers who respond with 7s or 8s on traditional customer satisfaction surveys. These so-called “fence sitters,” or “passives,” are neither promoters nor detractors. With other customer satisfaction surveys, they are considered “satisfied customers,” and the organization may be content with those scores. However, research proves that these groups do not support business growth and, in fact, are very likely to defect, based on reasons such as price. These customers suppress your NPS score, which should keep you focused on how to move them from passives to promoters.
How to Improve Customer Loyalty
You can pull specific levers in your organization to improve your Net Promoter Score and your overall customer loyalty. Some of the key drivers of “likelihood to recommend” in a business to business (B2B) context are:
- Value/ROI – Overall business value, value for money, price for performance, ROI.
- Ease of doing business – Creating an “easy to do business with” set of processes.
- Sales – Sales reps, sales process, purchase experience, procurement.
- Account management – Overall relationship, maintaining an executive relationship, sales and account management.
- Product reliability – Performance, reliability, durability, availability.
- Product quality – Overall quality, overall performance, product experience.
- Consulting/professional services – Consulting service, consulting engagement, professional service.
- Customer support – Customer service, technical support, incident management.
- Loyalty metrics – NPS and other loyalty metrics held to the standards of financial reporting.
How useful would it be for your business to get the real truth about how engaged your employees are? And what if you could score that employee engagement?
Gallup survey data indicate that, in the average North American business, 71% of employees are not engaged. The costs of this “nonengagement” are staggering—up to $400 billion per year!
As a matter of fact, only 24% of employees have had 2010 company objectives clearly articulated to them. When 150,000 workers were asked to name the top priorities of their companies, only 15% could respond correctly. Even worse, only 6% knew what their own individual priorities were. (Source: Stephen Covey and Bob Whitman, Predictable Results in Unpredictable Times)
Happy Employees are Productive Employees?Actually, the opposite seems to be the case. Research indicates that productive employees are more likely to be happy employees. Employee engagement is positively correlated with:
- Increased customer loyalty, sales, and company growth, and
- Decreased staff turnover, absenteeism, and accidents.
Although Fred Reichheld originally developed the Net Promoter Score as a customer loyalty metric, the adaptation of NPS to employee engagement is a natural fit. By refocusing the question to: “How likely are you to recommend company X as a place to work to a friend or family member?” you now have the “Ultimate Question” for employee engagement.
Is the Net Promoter Score for employee engagement a metric or a way of doing business? The answer is both. The Net Promoter Score is a discipline that has progressed well beyond the computation into a series of best practices that drives positive results for employee engagement in organizations that adopt it. By asking the question and listening to what your people are saying, you are more likely to encourage a culture of accountability and execution.
The Final Word
Whether you are focused on improving the relationship you have with existing customers or employees, or are looking to grow one, the other, or both, the Net Promoter Score is a simple, research-based set of tools and processes designed to ensure continued success in your business. When was the last time you asked the key stakeholders in your business the “Ultimate Question”?
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